What is Stock Watcher?

John Lister

Stock Watcher is the name of a computer program used by the New York Stock Exchange (NYSE) to identify suspicious patterns in buying and selling. These can indicate the possibility of illegal "boiler room" activity. The Stock Watcher name is also used for some unofficial independent programs to detect fraud, as well as software which tracks market movements to help people make investment decisions.

The New York Stock Exchanges uses Stock Watcher to identify suspicious trading.
The New York Stock Exchanges uses Stock Watcher to identify suspicious trading.

The term boiler room refers to a shady trading company and derives from the way some of these companies operated out of low-rent facilities which could be quickly opened up and closed down. Those operating a boiler room may carry out a range of illegal activities involved manipulating stock prices. One illegal aspect of their behavior might be promoting a stock to investors without disclosing that they had a relationship with the company whose stock was involved. These often turn into "pump and dump" operations where the scammers artificially inflate the market price and then sell at a profit before the stock returns to or even below its "natural" price.

The New York Stock Exchange uses a computer program called the Stock Watcher to spot suspicious trading patterns, possibly signaling fraud or other illegal activity.
The New York Stock Exchange uses a computer program called the Stock Watcher to spot suspicious trading patterns, possibly signaling fraud or other illegal activity.

Stock Watcher is a piece of software which has been part of the New York Stock Exchanges program to detect and stamp out illegal trading activity. For security reasons, the precise way in which the software is deployed and operates is confidential. As a general principle, the software assesses all sales of stocks and highlights any unusual patterns. These could include both sudden price movements and a sudden increase in the volume of a particular stock which is being traded.

Stock Watcher is only an indicator tool and does not confirm that illegal activity is taking place. Instead, when it flags up a particular stock with suspicious patterns, NYSE staff examine the situation and see whether there is a rational explanation or if they suspect illegal behavior and need to investigate. They then consult the Securities Exchange Commission if they believe rules have been broken which might require disciplinary action.

The name Stock Watcher is also used by some independent advice services. These aim to inform investors about firms or brokers which may be carrying out boiler-room type activity. Whether such information is accurate and the allegations fair is debated.

A stock watcher is also a type of computer program aimed at investors. How it works will vary from program to program. Some simply keep track of how stocks you have invested in are performing. Others aim to identify market trends which could highlight stocks with the potential for growth. The sophistication and usefulness of such software can vary immensely.

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